Is auctioning a house the smart way to go?
April 12, 2024 11:33 AM Subscribe
My siblings and I inherited a family home and are preparing to sell. One of my siblings is urging us to use a real estate auction service rather than selling via the traditional route. I am leery.
The house is in a decent urban area, presentable, and in reasonable shape, but does need some repairs and updates. My sib's arguments are: the sale would be as-is, we'd pay no commission, and it would be all done within 30 days. But we'd have to initially price the house well below market value (some 20% below) to attract bidders, and we would have to accept the highest bid even if it's below market value. (There is apparently no reserve amount in this type of auction.)
I'm leery because of my fear that the house would end up with an investor group (I'm told that investor groups buy up houses, rent them at exorbitant rates, pricing out middle- and low-income people). I'm also not happy about the potential for not realizing full value. I get that the issues of repairs and updates would not be in play this way, we wouldn't pay a commission (6% around there), and the whole thing could go faster, though I for one am not in a big rush. I just want to do what's smart.
Anyone out there who's gone this route, I'd love to hear how it went. Thanks.
The house is in a decent urban area, presentable, and in reasonable shape, but does need some repairs and updates. My sib's arguments are: the sale would be as-is, we'd pay no commission, and it would be all done within 30 days. But we'd have to initially price the house well below market value (some 20% below) to attract bidders, and we would have to accept the highest bid even if it's below market value. (There is apparently no reserve amount in this type of auction.)
I'm leery because of my fear that the house would end up with an investor group (I'm told that investor groups buy up houses, rent them at exorbitant rates, pricing out middle- and low-income people). I'm also not happy about the potential for not realizing full value. I get that the issues of repairs and updates would not be in play this way, we wouldn't pay a commission (6% around there), and the whole thing could go faster, though I for one am not in a big rush. I just want to do what's smart.
Anyone out there who's gone this route, I'd love to hear how it went. Thanks.
I don't know your family dynamic but if I were faced with this situation my first and primary thought would be that my sibling was in some kind of financial bind they weren't sharing.
posted by phunniemee at 12:22 PM on April 12, 2024 [25 favorites]
posted by phunniemee at 12:22 PM on April 12, 2024 [25 favorites]
Please sell it to a human person who can't pay for it with cash and maybe even has to get PMI because they can't afford the down payment but who like, wants a house to live in. Ask for letters along with offers and sell it to a local teacher or something.
From my understanding, normal real estate is sold as-is all the time. You just tell the people making offers, and then once you accept an offer and they request repairs, you say no. And then they buy it from you because you were up front about everything in the first place, and everyone involved on the selling end is already housed and employed so there is no rush forcing you to do anything you don't want to.
This is free money for everyone left alive, that no one benefiting from (probably) earned. I really don't see why waiting 45 days instead of 25 or 30 days is worth making the world a worse place, unless the sibling has like, gambling debts they need to pay off immediately.
posted by Number Used Once at 12:24 PM on April 12, 2024 [15 favorites]
From my understanding, normal real estate is sold as-is all the time. You just tell the people making offers, and then once you accept an offer and they request repairs, you say no. And then they buy it from you because you were up front about everything in the first place, and everyone involved on the selling end is already housed and employed so there is no rush forcing you to do anything you don't want to.
This is free money for everyone left alive, that no one benefiting from (probably) earned. I really don't see why waiting 45 days instead of 25 or 30 days is worth making the world a worse place, unless the sibling has like, gambling debts they need to pay off immediately.
posted by Number Used Once at 12:24 PM on April 12, 2024 [15 favorites]
It has been my experience when auctioning a classic car, that the buyer pays a buyer's premium or fee to the auction house, not me the seller. If it is decided to go the auction route, that should, of course, be clarified. AzraelBrown is correct in their analysis that a buyer's premium will likely reduce the auction price paid. A sophisticated buyer will look at the winning bid price plus the buyer's premium as the net sale price. Who the net sales price goes to or how it is split up between auction price and buyer's premium is not the buyer's issue. They only know what the top dollar they are willing to pay is.
If one of the siblings needs cash or wants to sell fast for some financial reason, perhaps you and/or another sibling can lend them money against their share of the house.
As for the fear of the house ending up with an investor group that engages in shady renting practices, are you willing to turn down the highest (or only) bid selling the house the regular way for true market value depending on who the potential buyer is? Will you be vetting all potential buyers for some criteria you deem acceptable?
I personally would speak to a RE professional about what they estimate the selling value of the house would be under "normal" circumstances and also how long they think it would take to sell it at various price points.
I am with you in that I would sell it through a broker the traditional way, but know that that too does not guarantee any specific sale price or who the buyer is not.
posted by JohnnyGunn at 12:26 PM on April 12, 2024 [2 favorites]
If one of the siblings needs cash or wants to sell fast for some financial reason, perhaps you and/or another sibling can lend them money against their share of the house.
As for the fear of the house ending up with an investor group that engages in shady renting practices, are you willing to turn down the highest (or only) bid selling the house the regular way for true market value depending on who the potential buyer is? Will you be vetting all potential buyers for some criteria you deem acceptable?
I personally would speak to a RE professional about what they estimate the selling value of the house would be under "normal" circumstances and also how long they think it would take to sell it at various price points.
I am with you in that I would sell it through a broker the traditional way, but know that that too does not guarantee any specific sale price or who the buyer is not.
posted by JohnnyGunn at 12:26 PM on April 12, 2024 [2 favorites]
Number Used Once: "And then they buy it from you because you were up front about everything in the first place"
This is not necessarily true, because the bank is effectively the one buying the house, not the occupant, and the bank can say "we don't want this property on our books until these problems have been fixed." Similarly, homeowner's insurance can mandate certain expensive modifications to fix problems that were brought to light during the inspection.
posted by adamrice at 1:00 PM on April 12, 2024 [3 favorites]
This is not necessarily true, because the bank is effectively the one buying the house, not the occupant, and the bank can say "we don't want this property on our books until these problems have been fixed." Similarly, homeowner's insurance can mandate certain expensive modifications to fix problems that were brought to light during the inspection.
posted by adamrice at 1:00 PM on April 12, 2024 [3 favorites]
I want to echo those saying that houses are sold "as-is" all the time. My own house that I'm sitting in right now needed (in my opinion) about 30K worth of work. The seller agreed to drop the price by 15K and said "take it or leave it." We took it. You can do the same thing, or similar - a buyer can request anything they want during purchase; you can agree to do the work or lower the price instead and let them take that. In a very strong buyer's market this might not be what you want; in the current market you're probably going to be fine.
Unless somebody (you, the sibling...) is in serious need of money as soon as possible, an auction is the worse path.
posted by Tomorrowful at 1:06 PM on April 12, 2024 [4 favorites]
Unless somebody (you, the sibling...) is in serious need of money as soon as possible, an auction is the worse path.
posted by Tomorrowful at 1:06 PM on April 12, 2024 [4 favorites]
It is worth your time to interview a couple of real estate agents. Describe your situation and they can tell you how they work with it.
- People sell houses 'as-is' all the time - it needs to be listed that way and in the contract but if you do that then buyers can not insist on you fixing anything in order to close and they will lose their up front fee if they back out based on something that they find in the inspection. If it is not sold as-is usually they can insist that you repair something or they can walk away and get their earnest money back. Note there are wide variations in how much earnest money buyers put up and what the usual terms of for getting it back.
- Some of the larger real estate brokers can also arrange to cover the cost of fixing up a house and then get paid back out of escrow. You still get to decide what repairs are worth doing. Real estate agents are definitely able to take the lead on getting things fixed where the family does not have to do any work at all except for approve the budget. Sometimes a modest investment ($10,000 - $30,000) can increase the selling price by double, triple or more of what was paid since it opens the house up to people who don't want to deal with the work themselves or who don't have the imagination to see what it would look like with fresh paint and carpets. When we sold a house out of state, our agent coordinated all the work to get it ready for sale. Very low stress.
posted by metahawk at 1:31 PM on April 12, 2024 [3 favorites]
- People sell houses 'as-is' all the time - it needs to be listed that way and in the contract but if you do that then buyers can not insist on you fixing anything in order to close and they will lose their up front fee if they back out based on something that they find in the inspection. If it is not sold as-is usually they can insist that you repair something or they can walk away and get their earnest money back. Note there are wide variations in how much earnest money buyers put up and what the usual terms of for getting it back.
- Some of the larger real estate brokers can also arrange to cover the cost of fixing up a house and then get paid back out of escrow. You still get to decide what repairs are worth doing. Real estate agents are definitely able to take the lead on getting things fixed where the family does not have to do any work at all except for approve the budget. Sometimes a modest investment ($10,000 - $30,000) can increase the selling price by double, triple or more of what was paid since it opens the house up to people who don't want to deal with the work themselves or who don't have the imagination to see what it would look like with fresh paint and carpets. When we sold a house out of state, our agent coordinated all the work to get it ready for sale. Very low stress.
posted by metahawk at 1:31 PM on April 12, 2024 [3 favorites]
Best answer: I was also very leery when my sibling, who was responsible for settling my mom's estate, proposed this. But we decided to go for the auction, and it worked GREAT for us. A+ would do it again. Reasons:
1. We all knew and trusted the estate auction company: A family company of a family we grew up with, established in the community, excellent reputation.
2. All of us lived a full days travel away from the house. None of us wanted the job of selling it. None of us wanted the job of making sure it was maintained, lawn mowed, etc. while it was on the market for an indefinite time.
3. We weren't trying to get our money fast to pay gambling debts LOL. We just wanted to settle the estate with minimal hassle, and move on with our day jobs. The auction gave us a fixed date for that to happen, which was a big plus.
4. While we didn't want to leave too much money on the table, we also weren't super concerned about getting the max price. (We feel we got above market value and above what we would have asked. ) It went to a nice couple who live in it now.
5. The auction company handled the estate sale of the house's contents, then sale of the house and land, in a same-day auction. Those sibs who wanted to be there were. And it was done.
I don't recall having to price the house at all. Bidders came to the auction that day, to bid. We did have to agree to accept the highest bid. I suppose we paid a commission to the auction company but I don't remember the details; memail me if you want me to look it up.
In our family, the sibling serving as executor was the one who proposed the auction. And since that sibling was the one doing the majority of the work, while also still having to manage their own day job and family responsibilities, the rest of us gave them our blessing to do what they felt would make it easier for them. And it really did turn out to be easy.
posted by evilmomlady at 1:40 PM on April 12, 2024 [1 favorite]
1. We all knew and trusted the estate auction company: A family company of a family we grew up with, established in the community, excellent reputation.
2. All of us lived a full days travel away from the house. None of us wanted the job of selling it. None of us wanted the job of making sure it was maintained, lawn mowed, etc. while it was on the market for an indefinite time.
3. We weren't trying to get our money fast to pay gambling debts LOL. We just wanted to settle the estate with minimal hassle, and move on with our day jobs. The auction gave us a fixed date for that to happen, which was a big plus.
4. While we didn't want to leave too much money on the table, we also weren't super concerned about getting the max price. (We feel we got above market value and above what we would have asked. ) It went to a nice couple who live in it now.
5. The auction company handled the estate sale of the house's contents, then sale of the house and land, in a same-day auction. Those sibs who wanted to be there were. And it was done.
I don't recall having to price the house at all. Bidders came to the auction that day, to bid. We did have to agree to accept the highest bid. I suppose we paid a commission to the auction company but I don't remember the details; memail me if you want me to look it up.
In our family, the sibling serving as executor was the one who proposed the auction. And since that sibling was the one doing the majority of the work, while also still having to manage their own day job and family responsibilities, the rest of us gave them our blessing to do what they felt would make it easier for them. And it really did turn out to be easy.
posted by evilmomlady at 1:40 PM on April 12, 2024 [1 favorite]
If your market is hot, you may want to look at one of the online agents like Redfin. Redfin commission is 1%.
posted by bq at 1:47 PM on April 12, 2024 [1 favorite]
posted by bq at 1:47 PM on April 12, 2024 [1 favorite]
As-is is particularly common in estate sales, I believe. That's how I got the house I'm currently living in. Definitely got an inspection, which turned up pretty much the same sorts of minor things inspections always turn up, but I was willing to walk away from my earnest money if I had to.
posted by humbug at 2:09 PM on April 12, 2024
posted by humbug at 2:09 PM on April 12, 2024
It depends on your specific real estate market.
In my market every house is sold as-is, no contingencies, and sells in less than two weeks unless it was a meth lab so I (in my market!) don’t see any advantage to an auction.
posted by aramaic at 2:58 PM on April 12, 2024 [2 favorites]
In my market every house is sold as-is, no contingencies, and sells in less than two weeks unless it was a meth lab so I (in my market!) don’t see any advantage to an auction.
posted by aramaic at 2:58 PM on April 12, 2024 [2 favorites]
I'm leery because of my fear that the house would end up with an investor group...
This can easily happen in a traditional sale, too. In fact, when you put the house up for sale, you will likely receive a barrage of no-inspection, cash offers from what are almost certainly representatives for investment groups.
posted by Thorzdad at 3:08 PM on April 12, 2024 [1 favorite]
This can easily happen in a traditional sale, too. In fact, when you put the house up for sale, you will likely receive a barrage of no-inspection, cash offers from what are almost certainly representatives for investment groups.
posted by Thorzdad at 3:08 PM on April 12, 2024 [1 favorite]
From my understanding, normal real estate is sold as-is all the time. You just tell the people making offers, and then once you accept an offer and they request repairs, you say no.
Just as a datapoint, veterans who are using VA loans are literally not allowed to do this, so if you're deciding you won't repair under any circumstances, you are closing them out of your market.
posted by corb at 11:01 AM on April 13, 2024 [1 favorite]
Just as a datapoint, veterans who are using VA loans are literally not allowed to do this, so if you're deciding you won't repair under any circumstances, you are closing them out of your market.
posted by corb at 11:01 AM on April 13, 2024 [1 favorite]
The standard NY real-estate contract has an as-is clause, so that's not at all unusual here. In Australia, an economist told me, all houses are sold by auction, and in the UK, sellers can back out of contracts if they get a better offer, so the process is effectively an auction. If I were selling my house in the US today, I would use an auction.
posted by novalis_dt at 7:11 AM on April 15, 2024
posted by novalis_dt at 7:11 AM on April 15, 2024
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"Pay no commission" is a big red flag: how does the auctioneer make money on this? They're taking a percentage, and it's probably non-negotiable, unlike a realtor who can usually flex on 'points' during the sale transaction. If it's buyer's premium, that's still coming out of the max amount a bidder would have paid you otherwise.
Edit to add: the auctioneer needs to advertise the sale, they're likely going to be on-site for the auction, there's a lot of costs involved that are usually passed on to the seller, not as part of the sales fees. The cheaper the auction is, the more red flags to me that this is designed to part you with something valuable without you getting a reasonable payment. Really, don't go this route unless you're absolutely stuck for money and need it now. Heck, even in that case, there's other ways to get money out of a house without selling it for pennies on the dollar.
posted by AzraelBrown at 11:38 AM on April 12, 2024 [20 favorites]